Case Analysis: Evidence and Model Evaluation

The purpose of this section is to explicate the assessment of the determinants in five selected JVs and to evaluate how the case evidences support the proposed model.

Note that, in this section, since we will use the results previously tabulated in Section 3, readers are suggested to cross reference this section with Tables 1 through 6 for clarity.

Analysis of C210/C215 JV

As shown in Table 1 and 2, Obayashi is the foreign and leading partner and Fu Tsu is the local partner. Their equity share percentages are 55% and 45%, respectively. This JV adopts JMJ.

• Low assessed level of cultural difference

In terms of managerial decisions, both partners emphasized on prompt problem solving and thus the representing managers had full authorizations from parent companies. The only minor problem was the complaint of fairness issues. Because the employees are rewarded according to the evaluation and incentive systems of individual partners, which vary a lot, some complained that “it was not fair to be treated or rewarded differently under the same JV.” In terms of corporate value, both partners believed in quality and safety, especially for tunneling projects. Lastly, according to one respondent,

“language difference did not create any major communication problems.”

• High assessed level of trust

The high level of trust between Obayashi and Fu Tsu is based on their upbeat experiences of past cooperation and the good reputation of each individual firm. For one thing, since Obayashi was the top construction firm in the world, Fu Tsu believed that Obayashi was well qualified in construction techniques, project management, and financial transparency. Obayashi also believed that “Fu Tsu was one of the reputable construction firms in Taiwan and that Fu Tsu would never do anything to damage the established reputation.” For another, Obayashi had a very positive impression on its major cooperation around ten years ago with Fu Tsu in the Taipei Metropolitan Rapid Transit project. The respondents had stated, “Without such trust, they could never work so closely under JMJ.”

• Moderate assessed level of needs for procurement autonomy

Both partners considered that they had good relationships with their suppliers and each partner had different purchasing advantages. Obayashi was assigned to the procurement of certain special equipments from Japan, and Fu Tsu was assigned to the procurement of certain batch materials from Taiwan. Those that did not fall into the two categories were jointly purchased following a transparent procedure, and the negotiation efforts were reasonably small. To conclude, the division of procurement and the limited efforts for negotiation indicate a moderate level of needs for procurement autonomy.

• High assessed level of motivation for learning

Although Obayashi led the construction of tunnels and Fu Tsu led the construction of viaducts, both partners considered learning from the other partner, an objective of this JV. Since Fu Tsu, the local partner, had no experience in tunneling, they were highly motivated to learn tunneling techniques from experienced Obayashi. On the other hand, Obayashi aimed to learn the procurement practice, market information, and human resource information in Taiwan to prepare for operating their new business in Mainland China. In order to facilitate their learning, according to the respondents, “they purposely mixed both partners’ employees in work teams and arranged frequent routine meetings before and after work every day so as to not only promptly resolve problems encountered but also provide platforms for learning.” Obviously, the JMJ structure is the one that provides such close working relationship and learning environment.

• Remarks

Based on the analysis of the four determinants, the adoption of JMJ in this JV supports the proposed propositions. Particularly, the low level of cultural difference, high level of trust, and high level of motivation for learning strongly suggest the use of JMJ.

Analysis of C230/C240 JV

The JV in C230 and C240 was formed by Hyundai, the foreign and leading partner, and Chung Lin, the local partner. It turned out that the cooperation among the partners was not very smooth and Chung Lin withdrew their shares and stepped out of the JV one year or so after the project began. The equity share ratio of Hyundai always maintained at above 60%. Even though this JV adopts JMJ, the following analysis shows that SMJ should have been a better choice and could have helped to prevent the dissolution of partnership.

• High assessed level of cultural difference:

The high level of cultural difference is mainly caused by different corporate values.

Consistent with the general perception of Korean culture, Hyundai’s management style is more toward collectivism and strong leadership. Some interviewees stated, “Hyundai is so mission-oriented that project performance has much higher priority than individual’s benefits; for example, working overtime voluntarily is considered normal during the period of tight or delayed schedule.” On the contrary, the culture of the local partner is more individualistic. Project needs usually cannot justify the sacrifices of individuals’ rights. Consequently many difficulties in managing the JV were caused by frictions due to cultural difference, such as blames and complaints, coordination problems, lack of motivation, and sense of unfairness. Such high level of cultural difference largely increased the transaction costs, particularly under JMJ.

• Moderate assessed level of trust

The partnering firms had no previous cooperation experiences and reputation was not an important reference since Hyundai was not known as a major international firm and

Chung Lin was only a relatively small construction firm that has little experience in heavy civil construction experiences. According to the interview, “trust was mainly based on credit information.” Compared to other JVs such as those in C210/C215 and C291/296, where partners had much stronger bases for their trust as shown in Table 4, the level of trust between Hyundai and Chung Lin was considered moderate.

• High assessed level of needs for procurement autonomy:

Similar to the arrangement in C210/C215, the procurement included both divided and joint procurements. However, since the local partner was highly concerned with the joint procurement decision, its representing manager was not adequately delegated to make those joint decisions, causing excessively high negotiation efforts. In fact, the high negotiation efforts clearly indicated the needs for more divided procurements, which can be easily achieved under SMJ structure.

• High assessed level of motivation for learning

During the formation of the JV in C230/C240, both parties had relatively strong motivations to learn from each other. As a newcomer in Taiwan’s construction market,

“Hyundai is eager to learn Taiwan’s culture, management style, information of local subcontractors, etc.” During the first year’s cooperation, according to Hyundai, “many staffs cooperated with Chung Lin and were well guided by Chung Lin in learning how to conduct business in Taiwan.” Meanwhile, due to its limited experiences in heavy construction, Chung Lin was interested in gaining project experiences and certain skills in tunneling and viaduct construction. It turns out that their high-leveled motivation for learning is the only hypothesized factor that supports the use of JMJ in this JV.

• Remarks

As mentioned above, the cooperation among the partners was not very smooth, and

Chung Lin withdrew their shares and stepped out of the JV after one year’s cooperation.

Although many other factors may have also contributed to the withdrawal of Chung Lin, this JV is good evidence illustrating the negative impacts on a JV caused by an

“inappropriate” choice of governance structure from the model’s perspective. More importantly, if the rival proposition is hypothesized by “the proposed determinants have no impacts on the optimal choice of ICJV control structure,” the dissolution of this JV can be considered evidence that rebuts the rival proposition. Pursuing this further, the governance structure choice in this case should have been SMJ, instead of JMJ.

Particularly, the high level of cultural difference and high level of needs for procurement autonomy highly suggest the use of SMJ, even though their motivation for learning suggests JMJ. As a result, the negative impacts on this JV due to the use of opposite control structure serve as contrasting evidence that supports the proposed model.

Analysis of C280 JV

The JV in C280 was formed by two Korean partners, Samsung and Doosan, and a local partner, IE&C, where Samsung was the leading partner. The equity share ratios for Samsung, Doosan and IE&C are 51%, 29% and 20%, respectively. This JV adopts SMJ.

• High assessed level of cultural difference

As stated in the interview, “cultural difference is one major reason for this JV to adopt SMJ.” There were considerable disagreements between Samsung and Doosan due to their different engineering backgrounds and specialties as well as the role change in their business relationship. Doosan is the top supplier of power plant equipments in

Korea and has fewer experiences in heavy civil construction. In Korea, the business relationship between Doosan and Samsung was that of a client and contractor.

According to the respondent, “the new type of liaison as partnering contractors and their different engineering backgrounds seemed to create considerable difference in terms of corporate values and business practice, such as how to conduct business and how to manage projects.” Such cultural difference was further intensified “by the strong characters presented in the top managers of the two firms.” This case also gives a perfect example in which cultural difference can be significant between partners from the same country.

• Moderate assessed level of trust

Trust among Samsung and IE&C is “based on their good experiences of cooperation in the Taipei Metropolitan Rapid Transit project around ten years ago.” However, since IE&C was only a midsize construction firm in Taiwan, IE&C invited another Korean partner, Doosan, to join the JV, mainly to financially support the project and share the financial risks. As a result, the shares owned by IE&C in the JV were accounted for only 20% of the total equity, the smallest among all. Under such equity structure, IE&C

“became wary about the disadvantages due to its weak position in equity shares.” In spite of the relatively high level of trust between Samsung and IE&C, trust in this JV was substantially weakened by the equity structure and the addition of a new partner.

• High assessed level of needs for procurement autonomy

This JV was responsible for the construction of 34 km viaducts. The contract was divided into three parts and separately assigned to and managed by each individual partner. For instance, Samsung independently built one prefabrication plant and procured all items and subcontractors for the assigned 13 km viaducts. In addition to the

divided procurements, there were some major joint procurements for two major equipments and concrete aggregates. “These items were jointly procured mainly because of the concern of economies of scale and the joint needs of the special equipments and materials.” Besides, there was another separate small JV formed by Doosan and the local partner IE&C for a prefabrication plant. It is also stated in the interview, “autonomous procurement is very important to individual partner’s profitability and the SMJ structure provides such flexibility for procurement in this JV.”

• Moderate assessed level of motivation for learning

During the initial stage of JV formation in C280, all but Samsung considered learning an objective of participating in this JV. Doosan joined the JV with the intention “to learn the local business information and opportunities so as to prepare for future expansion of their power plant equipment business in Taiwan.” Similarly, the local partner IE&C aimed “to learn some advanced construction techniques/management from Samsung.”

Samsung, on the other hand, had nothing in particular to learn from other partners, partly because of Samsung’s rich experiences in international projects. However,

“because of the problems caused by cultural difference as discussed earlier, they had to forego the adoption of JMJ, which was presumably better for learning.”

• Remarks

The JV in C280 supports the proposed propositions through the use of SMJ given the high level of cultural difference and high level of needs for procurement autonomy.

Analysis of C291/C296 JV

The JV for C291/C296 was formed by Shimizu, the foreign and leading partner, and

Evergreen, the local partner. The equity share percentages for the two partners were 42% and 58%, respectively. C291/C296 adopts JMJ. It is worth noting that Shimizu, the leading partner but with fewer equity shares, a common practice in construction JVs, confirms that the actual governance is not a strict or automatic consequence of ownership as argued by Geringer and Hebert (1989).

• Low assessed level of cultural difference

In terms of managerial decisions, all partners fully delegated their decision-making rights to their representing managers in the JV board. In terms of corporate values, both partners focused on the overall benefits of a JV and believed that an individual partner’s profit was dependent on the success of the JV. The only minor issue is that “the foreign partner’s exhibition of superiority during communication created some minor problems and uncomfortable atmosphere.”

• High assessed level of trust

Three major reasons contributed to the high level of trust between the partners in C291/C296, even though they had no previous cooperation experiences. First, Shimizu is a highly reputable major international construction firm. Second, Evergreen is one of THSR’s major shareholders. Third, some of the partners’ top managers were old time classmates and good friends. Since their bases of trust were very strong, we consider the level of trust to be high.

• Moderate assessed level of needs for procurement autonomy

In this JV, all decisions for procurement over $60,000 were made jointly and those below $60,000 were made independently. Despite the fact that the level of needs for procurement autonomy may seem low since most procurement decisions were jointly made, we considered the level of needs for autonomy to be moderate. The major reason

is that higher priorities in an open bid competition were given to those bidders who were either recommended by or financially associated with the partnering firms. For example, in C291/C296, the concrete materials were from Japan and recommended by Shimizu, while the steel frames were from an associated business of the largest shareholder, Evergreen.

• High assessed level of motivation for learning

The foreign partners had more advanced skills and technology and were expected to guide the local partner. Evergreen was motivated to learn construction management of international projects and special techniques such as the removal of hazard underground pipes, partly because it was the first time that Evergreen participated in an ICJV.

Particularly, according to the interview, “To facilitate the learning, Evergreen purposely assigned key persons, those highly diligent and motivated engineers, to manage the construction work.” On the other hand, for foreign partners, although their motivation may not be as strong as Evergreen, they still hoped to learn how to conduct business in Taiwan. As a result, the level of motivation for learning is considered high.

• Remarks

As we can see, the adoption of JMJ for this JV is consistent with the model prediction.

Particularly, the low level of cultural difference, high level of trust, and high level of motivation for learning strongly suggest the use of JMJ.

Analysis of C295 JV

The JV for C295 was formed by the foreign and leading partner, Italian-Thai, together with PEWC, a passive equity holder and the local partner Evergreen. The equity share

percentages for the three partners were 35%, 15%, and 50%, respectively. This JV adopts JMJ. Note that the assessed levels of determinant variables in C295 were identical to those in C291/C296 JV, partly because Evergreen was the major shareholder in both JVs. Since the condition of each determinant variable in C295 is very similar to that in C291/C296, we shall forgo the details. Once again, the assessed levels of determinant variables in C295 strongly suggest the adoption of JMJ, as predicted by the proposed model.